New model accurately predicts stock market volatility and detects price jumps.
A new method was developed to model stock price volatility more accurately than using past volatility. By analyzing data from the SPY fund, researchers estimated a model for volatility on each trading day from 2007 to 2014. They found that the model worked well for almost half of the days and over two-thirds of five-day periods. When combined with the model, past volatilities were also good at spotting sudden changes in stock prices or volatility.